In this article, we will discuss: 10 Best Financial Stocks To Buy According to Hedge Funds.
According to the Business Research Company, the market for financial services has expanded significantly in the last several years and is further expected to grow at a compound annual growth rate (CAGR) of 7.7% in the next few years.
The year 2024 was remarkable for the financial sector, as seen by the Financial Sector Index, which rose over 30% as of mid-December and outperformed the broader market by almost 5 percentage points. This expansion came after worries over mid-sized bank failures in early 2024, which turned out to be isolated events rather than a problem affecting the entire industry.
As of January 7, 2025, the market’s financial sector produced returns of 5.51% over three years, 9.68% over five years, and 9.49% over ten years. These numbers, however, pale in comparison to the sector’s remarkable success during the previous 12 months, which saw a return of 28.01%.
Looking forward, according to Fidelity’s report, the financial industry’s prospects for 2025 seem promising, backed by consistent economic expansion in the United States. It is projected that the Federal Reserve’s move to rate decreases in the second half of 2024 will boost confidence and lower credit risk. Falling rates have the potential to boost lending and deposit growth while also reducing net interest margins.
As per Fidelity analyst Matt Reed:
“Lower rates boost economic momentum, benefiting banks and payment processors alike.”
Banks that are well-diversified and have solid fundamentals are better equipped to handle a soft landing situation. Sensitive to consumer spending, payment processors are likewise poised for expansion as more accommodating monetary policy and strong consumer activity coincide.
Risks still exist, though. As per the aforementioned report, if the economy weakens, some lenders may face difficulties due to their exposure to commercial real estate and possible nonperforming loans. Nonetheless, financials start 2025 with significant momentum due to a less stringent regulatory agenda following the election and more prospects for mergers and acquisitions.
Michael Kantrowitz, chief investment strategist at Piper Sandler stated:
“I think investors have rotated a little bit out of some of the big tech companies and into the big financial companies,”
He claimed that while a lot of optimism about artificial intelligence (AI) is priced into tech businesses, some investor movement made sense since the rate environment has improved for bank earnings.
Deloitte’s 2025 banking and capital markets outlook report states that banks can strengthen their basis for sustainable growth with creativity and discipline as the banking industry adjusts to a low-growth, lower-rate environment. According to the report, the baseline scenario for economic growth in 2025 is projected to fall to 1.5%, with possible deviations between 1.0% and 1.9% due to slowing consumer spending, greater unemployment, and sluggish business investment. By Q2 of 2024, consumer debt had risen to $17.7 trillion, and by March 2024, savings from the pandemic had been spent, further straining the economy. Inflation is forecast to be around 2%, allowing for three to four rate cuts, bringing the federal funds rate down to 350-375 basis points. Treasury yields are projected to fall, and following two years of inversion, the yield curve may normalize. With the exception of economies that are under pressure, global central banks will likely choose to cut benchmark rates.
With that said, here are the 10 Best Financial Stocks To Buy According to Hedge Funds.
A business executive analyzing their latest financial performance figures, thanks to the company’s online cash management services.
Methodology:
We sifted through holdings of financial ETFs and online rankings to form an initial list of 20 financial stocks. From the resultant dataset, we chose 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 900 hedge funds in Q3 2024 to gauge hedge fund sentiment for stocks.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
10. Intercontinental Exchange Inc. (NYSE:ICE)
Number of Hedge Fund Holders: 84
One of the Best Financial Stocks, Intercontinental Exchange, Inc. (NYSE:ICE) offers supplementary data products and operates financial exchanges in a vertically integrated manner. Though the firm is best recognized for its ownership of the New York Stock Exchange, which it bought in 2013, it also operates a major derivatives exchange. The ICE Brent crude futures contract is the company’s largest commodity futures offering. Intercontinental Exchange has created its mortgage technology business (22% of net revenue) and fixed-income and data services division (24% of net revenue) through a series of acquisitions in addition to its exchanges business, which accounts for roughly 54% of net revenue.
In Q3 of 2024, Intercontinental Exchange, Inc. (NYSE:ICE), net sales hit a new high of $2.3 billion, up 17.27% year on year, due to record transaction revenues of $1.1 billion and record recurring revenues of $1.2 billion. Adjusted earnings per share also reached a record high of $1.55, while adjusted pro forma operating income increased by 12% yearly to a record $1.4 billion. The Exchange division performed exceptionally well, as seen by its net sales, which increased 12% year over year to a record $1.3 billion. This segment’s transaction revenues jumped by 17% to $890 million, mainly due to a rise of 23% in energy revenues and a 34% increase in interest rate business.
The Fixed Income and Data Services segment also experienced significant growth, with record revenues of $586 million. This segment’s recurring revenues hit a record $461 million, up 6% from the previous year. The index business witnessed growth of about 30% YoY. Furthermore, Intercontinental Exchange, Inc. (NYSE:ICE) achieved notable strides in debt reduction, reducing its outstanding debt by roughly $600 million over the quarter and finishing with an adjusted leverage ratio of approximately 3.5x EBITDA.
Aristotle Core Equity Strategy stated the following regarding Intercontinental Exchange, Inc. (NYSE:ICE) in its Q3 2024 investor letter:
“Intercontinental Exchange, Inc. (NYSE:ICE) contributed to portfolio performance in the third quarter, driven by continued strength in the company’s Exchanges segment and expectations that the Mortgage Technology segment’s revenues have troughed ahead of an eventual recovery in U.S. housing market activity. Exchanges’ revenues continue to be driven by growth in energy and interest rate futures trading volumes, with energy trading activity expected to remain elevated, primarily bolstered by increasing data center-driven electricity demand.”
Natixis Global Asset Management’s Harris Associates was the largest stakeholder in the company from among the funds in Insider Monkey’s database at the end of Q3 2024. It owns 13.29 million shares worth $2.14 billion as of Q3.
9. S&P Global Inc. (NYSE:SPGI)
Number of Hedge Fund Holders: 85
Participants in the capital and commodity markets can access data and benchmarks from S&P Global Inc. (NYSE:SPGI). In terms of profitability, its ratings division is S&P’s largest segment and the biggest credit rating firm globally. Market intelligence is S&P’s largest revenue division, offering desktop, data, and advisory solutions; enterprise solutions; and credit/risk solutions primarily to the financial services industry. The other segments of the company are indexes, mobility (Carfax), and commodity insights (Platts and other data).
Furthermore, S&P Global Inc. (NYSE:SPGI) has recently launched tools like ChatAI and integrated generative AI as part of its focus on technological advancement. The firm has also improved its portfolio and reaffirmed its fundamental skills through strategic actions, including the acquisition of Visible Alpha and its purchase of PrimeOne. The stock has risen by around 14% since the beginning of 2024, making it one of the Best Financial Stocks.
S&P Global Inc. (NYSE:SPGI) reported $3.6 billion in revenue for the third quarter of 2024, a 16% growth over the same period the previous year. Apart from its ratings business, the company also benefits from the consistent cash flow produced by its data and analytics division. As of now, the company’s operating cash flow has grown to around $4 billion, a substantial increase from $2.4 billion in the same period last year. For 52 consecutive years, S&P Global Inc. (NYSE:SPGI) has increased its dividends.
Aristotle Atlantic Partners, LLC highlighted S&P Global Inc. (NYSE:SPGI)’s strong performance in its Q3 2024 investor letter. Here is what the firm has to say:
“S&P Global Inc. (NYSE:SPGI) contributed to portfolio performance in the third quarter, driven by growth in corporate bond issuance and refinancing activity, with expectations for further acceleration if interest rates decline. The company has also achieved better-than-expected expense and revenue synergies from its acquisition of IHS Markit.”
Morgan Stanley increased its price target for S&P Global Inc. (NYSE:SPGI) from $570 to $595 on December 12, 2024. The company claims that it favors stocks in the business and education services markets, where it anticipates faster growth that is not yet represented in valuation, due to the possibility of better consumer credit and recovering capital markets in 2025.
Chris Hohn’s TCI Fund Management was the largest stakeholder in the company among the funds in Insider Monkey’s database at the end of Q3 2024. It owns 10.40 million shares worth $5.37 billion as of Q3.
